There's a bit of succession planning. From Warren Buffet in Berkshire Hathaway to Jamie Dimon at JPMorgan Chase, CEO transitions are on the homepage news. However, these carefully coordinated announcements hide an undeniable reality. Few organizations prioritize succession planning adequately.
According to executive intelligence firm Equilar, the average tenure of S&P 500 CEOs has declined 34% since 2017, while CEO exits increased 20% in the second half of 2024.
These exits often have large and negative organizational impacts, especially when unplanned or improperly managed. They can promote inconsistencies at the executive level, limit performance and outcomes, and erode trust and engagement among team members. Shockwaves are particularly damaging to organizations with growth obligations, such as those supported by private equity companies, and industries that rely heavily on people, such as healthcare.
While not all CEO transitions are expected, top leaders today have experienced high levels of burnout and are investigating many professional alternatives and retirements. This further highlights the need for an increase in organizations to prioritize succession planning and thoughtful transitions.
However, the limited room for current climate errors makes it insufficient to pull a standard playbook from the shelf. Companies need guidance that reflects today's reality, and most of all, the active involvement of both outgoing and incoming CEOs.
Advice for Outbound CEOs
The departure of top leaders' plans requires the process to start early and continue to engage and inform the board and other key stakeholders from the start. They need a variety of perspectives to best consider the full dimensions of their exit, including long runways and business needs, impact on people and culture, timing, and leadership attributes and capabilities needed to vault the organization to the next level of growth.
Once a successor is identified or finalized, the outbound CEO must take him under the tent and proceed with the development work of the transition plan. The plan will detail how organizations can maintain momentum and accelerate, and outline early value drivers and measurable milestones. It should also include recommendations from other management leaders who need to notify you of future transitions before your organization publishes an announcement internally or externally.
As they approach the exit, outbound CEOs must plan for the organization to jointly lead the organization for a period of time apart from its successors. Executives should ensure clear accountability to smooth decision-making paths and plan to make adjustments as needed. They also need to let go completely and prepare for the process of accepting the following:
Advice for inbound CEOs
CEO successors face a variety of challenges, often rooted in natural resistance to human change. To overcome such instincts, they need to gather team members early and begin normalizing the organization's evolution while sharing strategic plans and milestones. The focus should be on celebrating the reality that will change leadership culture and giving people time to coordinate and encourage feedback.
At the same time, new CEOs need to quickly advance an internal communication cascade that is properly segmented to members of the workforce while still rooted in shared messaging. Efforts should reflect best practices regarding meeting human needs amidst change, such as scarf models that emphasize situation, certainty, autonomy, relevance and equity.
Additionally, inbound CEOs should plan to measure their progress early and frequently, seeking ways to make improvements and build on success. To achieve this, they should be bidirectional to specific communication and seek out the “yes man” of the organization's truth.
Outbound and inbound CEOs alike must contest further with the reality that there is growing distrust of “traditional” leaders. In response, they should prevent the assumption that their height will automatically stimulate confidence, and instead actively seek to promote a greater level of trust. This can be achieved best by paying attention to employee engagement and embodying and promoting the values of accessibility, reliability and transparency.
All organizations face the looming prospects of CEO transition, regardless of size, industry or ownership. Their leaders and investors will ultimately have to choose to actively prepare for such changes or inviting big risks during already uncertain times.
